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Why Apple Has Tiny Market Share in India

Apple doesn’t like how it must do business in India, where it has to tie up with national, regional and local distributors to get its products to consumers.

Why do Apple devices have such a small market share in India, the fastest-growing wireless market in the world?

Apple’s market share of handsets in India is 1.2%, according to research firm IDC. South Korea’s Samsung, the market leader, has a 51% piece of the pie. Apple sold around 100,000 phones in India in the first six months of 2012, much lower than China, where the Cupertino, Calif. Company sold 2.3 million in the second quarter alone.

One reason is that Apple doesn’t like how it must do business in India, where it has to tie up with national, regional and local distributors to get its products to consumers. At each stage the company pays fees to its partners, eating into profitability.

“You know of course I love India, but I believe that Apple has some higher potential in the intermediate term in some other countries,” Tim Cook, Apple’s chief executive, said during an analysts call on July 24. “We have a business there, that business is growing, but the sort of the multilayer distribution there really adds to the cost of getting products to market,”

An Apple spokesman declined to comment.

Rajeev Gopi, a senior market analyst at IDC, says Samsung, whose Galaxy series is the top-selling smartphone in India, is willing to pay distributors in a bid to build market share.

A spokeswoman for Samsung in India said the company “continues to enjoy profitable growth in the country.”

Samsung says India is one of its top three strategic markets after the U.S. and China in terms of the number of smartphones sold.

Apple, by contrast, is focusing elsewhere, which explains why the company’s launch of the iPhone 5 in India is expected to be some time in December, much after its launch in major markets like the U.S. and Europe.

Another reason for Apple’s low volumes in India is cost. Unlike in the U.S. and Europe, the company sells most of its handsets in the open market, not through tie-up deals with carriers who subsidize the selling price of phones.

In China, Apple sells most of its phones on the open market and that hasn’t hurt sales. But India is a more “price sensitive” market, says Anshul Gupta, principal research analyst at research firm Gartner Inc. Apple, he adds, hasn’t been willing to cut prices to build volume. “Apple’s strategy is to focus on its profitability, not on market share.”

He doesn’t foresee Apple changing that strategy to cater to India, the largest wireless market in the world after China, with more than 900 million subscribers.

Samsung, on the other hand, offers a wider range of prices for its smartphones. Samsung’s portfolio range in cost between $130 and $700 in the Indian market, compared to a base price of $360 for a three-year old version of Apple’s iPhone.

Analysts say sales of smartphones, which account for 6.5% of overall handset shipments to India, may surge driven by the growth of Internet usage among the country’s 1.2 billion people. Technology giant Google Inc. last year predicted India may add 200 million Internet users by 2014 to its current 100 million users. Google points out that a large chunk of those users are likely to access the web through smartphones.

Faisal Kawoosa, the lead telecom analyst at CyberMedia Research, a research and consulting firm, says Samsung benefited from establishing a strong distribution network in the country, offering better fees to its partners than competitors.

Mr. Gopi says the Chinese market for smartphones is more evolved than India’s, where low-end smartphone penetration is still growing sharply. In China, the market for low-end smartphones is pretty much mature. Now, the Chinese aspire for premium products like the iPhone, he adds.

Further, iPhone’s sales there are aided by carriers like China Unicom and China Telecom who subsidize the cost of phones for subscribers, like in the U.S. In India, Apple sells most of the phones in open market, although it has had limited partnerships with carriers like Bharti Airtel Ltd. and Aircel Ltd.